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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Hong Kong Telecommunications ) File No. ITC-98-196 (Pacific) Limited ) ) Application for authority pursuant to) Section 214 of the Communications Act) of 1934, as amended to resell ) international private lines for the ) provision of non-telephonic services ) between the U.S. and Hong Kong ) ORDER AND AUTHORIZATION Adopted: October 14, 1998 Released: October 14, 1998 By the Chief, International Bureau: Table of Contents Paragraph No. I. Introduction and Background . . . . . . . . . . . . . . . . . . . . .1 II. Discussion . . . . . . . 6 A. Grant of Limited Authorization. . . . . . . . . . . . . . . . . . . .8 B. Equivalency Analysis. . . . . . . . . . . . . . . . . . . . . . . . 19 1. Legal Ability to Provide ISR . . . . . . . . . . . . . . . . . 22 2. Practical Ability to Provide ISR . . . . . . . . . . . . . . . 25 a. Interconnection. . . . . . . . . . . . . . . . . . . . . . . . 25 b. Competitive Safeguards . . . . . . . . . . . . . . . . . . . . 30 c. Existence of Effective Regulation . . . . . . . . . . . . . . 35 C. Market Entry Analysis. . . . . . . . . . . . . . . . . . . . . . . 40 1. Impact on Competition in the U.S. Market . . . . . . . . . . . 40 2. Additional Public Interest Factors . . . . . . . . . . . . . . 43 D. Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 III. Conclusion 51 IV. Ordering Clauses. . . . . . . . . . . . . . . . . . . . . . . . . . 52 I. Introduction and Background 1. In this decision, we grant Hong Kong Telecom (Pacific) Ltd. (HKTP) authority, pursuant to Section 214 of the Communications Act of 1934, as amended (Act), and Section 63.18(e)(3) of the Commission's rules, to resell international private lines interconnected to the public switched network for the provision of switched data and fax services between the United States and Hong Kong. 2. HKTP is a corporation organized and existing under the laws of Hong Kong. HKTP's parent is Hong Kong Telecom (HKT). Cable & Wireless, plc holds approximately 54 percent of HKT. Other subsidiaries of Hong Kong Telecom include Hong Kong Telephone Company Limited (HKTC) and Hong Kong Telecom International (HKTI). HKTC is one of four Hong Kong companies that provide local telephone facilities and basic telephone service. HKTI is current the monopoly provider of international voice services in Hong Kong. 3. On March 3, 1998, HKTP filed an application with the Commission to provide switched services over private lines, interconnected to the public switched network on both ends, also known as international simple resale (ISR), for "non-telephonic services." HKTP states that the Office of the Telecommunications Authority (OFTA), the Hong Kong telecommunications regulatory authority, recently has announced that it will allow Public Non-Exclusive Telecommunications Service (PNETS) licensees to provide ISR for "non-telephonic services," but not for voice. HKTP thus urges the Commission to grant it authority to provide ISR for these limited services only. HKTP proposes that the FCC define non- telephonic services in the same manner as OFTA, as "facsimile and data services that do not allow users to conduct two-way, real-time voice communication over the transmission facility." 4. HKTP states that grant of authority to provide service via ISR for only non-telephonic services is feasible as a practical matter, as OFTA has required PNETS ISR licensees to prohibit its customers from using non-telephonic circuits for voice traffic and required that they take measures to ensure that customers comply with this requirement. HKTP further states that granting limited ISR authority for fax and data traffic is consistent with FCC policy, because granting such authority would promote competition on the U.S.-Hong Kong route, and the Commission has never foreclosed the possibility of granting a limited authorization to provide ISR. Finally, HKTP contends that it meets the Commission's criteria for foreign carrier entry as well as for authorization to provide ISR. 5. AT&T Corp. (AT&T), British Telecommunications North America Inc. (BTNA), MCI Telecommunications Corp. (MCI), New T&T Hong Kong, Ltd. (New T&T), and WorldCom, Inc. (WorldCom) each filed petitions to deny HKTP's application. The parties all argue that we should not grant HKTP authority to provide non-telephonic ISR because Hong Kong does not satisfy the Commission's equivalency standard. In addition, the parties also argue that grant of HKTP's application would not serve the public interest. HKTP filed an opposition to the petitions to deny and AT&T, New T&T, MCI and WorldCom responded. II. Discussion 6. The Commission's rules require that a party seeking authorization to provide ISR for service to a WTO Member demonstrate either a) that settlement rates for at least 50 percent of the settled U.S. billed traffic on the route are at or below the benchmark settlement rate, or b) that the foreign market affords resale opportunities equivalent to those available under U.S. law. 7. HKTP does not allege that settlement rates on the U.S.-Hong Kong route are at or below the applicable 15 cent benchmark settlement rate, but rather argues that we should grant its application to provide ISR for "non-telephonic" services because Hong Kong offers resale opportunities for the provision of non-telephonic services equivalent to those available under U.S. law. For the reasons discussed below, we find that Hong Kong does, indeed, offer opportunities to resell international private lines, interconnected to the public switched network, for the provision of switched facsimile and data services that are equivalent to those available under U.S. law. We discuss below our findings: (1) to grant HKTP a limited authorization to provide switched data and fax ISR; (2) that Hong Kong offers equivalent resale opportunities for switched data and fax ISR; and (3) that HKTP's entry into the U.S. market serves the public interest, convenience and necessity. A. Grant of Limited Authorization 8. Several parties argue that it would be contrary to the public interest for the Commission to grant a limited service-specific authorization to provide ISR here. For the reasons discussed below, we find that it is consistent with the Commission's rules and policies to grant HKTP a limited ISR authorization, and that doing so will bring significant public interest benefits on the U.S.-Hong Kong route, including lower rates and increased competition. While the Commission has not previously granted an authorization to provide a limited subset of switched services over private lines, the Commission's rules are broad enough to afford the discretion to do so. We find that granting such an authorization in this case would further the Commission's policy in favor of private line resale, while minimizing the potential for one-way bypass. 9. Granting HKTP's application to provide ISR for limited services would bring significant public interest benefits. Granting authorization for HKTP (and consequently most other ISR licensees) to provide limited ISR service on the U.S.-Hong Kong route would put significant pressure on international collection rates for switched data and fax traffic. The fact that these benefits will, in the short term, accrue to fax and data users only does not detract from their value for those users. Further, since according to HKTP such traffic amounts to 20 percent of traffic on the route, we expect that authorizing ISR for switched data and fax services is also likely to exert downward pressure on settlement rates. We therefore find no merit to New T&T's argument that granting HKTP's application is unlikely to have any beneficial impact on settlement rates and thus does not benefit the public interest. 10. We also conclude that granting HKTP's application to provide limited services over ISR is consistent with the Commission's ISR and equivalency policies. The Commission's ISR policy is designed to facilitate the benefits of ISR while precluding one-way bypass. Granting HKTP's data/fax ISR authorization will put downward pressure on settlement rates, for the reasons mentioned above. At the same time, it will not result in one-way bypass for these services, because Hong Kong would offer U.S. carriers equivalent resale opportunities for data and fax ISR in the Hong Kong market. 11. HKTP seeks authority to offer ISR for "facsimile and data services that do not allow users to conduct two-way, real-time voice communication over the transmission facility." It defines "two-way, real-time voice communication" as "speech communication that is conveyed with no, or sufficiently short, delay to enable a two-way conversation to be carried on without interruptions or confusion." Because it is consistent with our equivalency policy to grant HKTP authorization to provide only those services for which Hong Kong provides equivalent resale opportunities, we will grant HKTP authorization to provide fax and data service only, as defined by OFTA. We will, as discussed below, require HKTP and all other U.S. carriers providing data/fax ISR to Hong Kong to take measures to ensure that voice traffic is not carried over data/fax ISR lines prior to Commission approval of voice ISR to Hong Kong. 12. New T&T argues that awarding HKTP a limited grant of authority to provide "non- telephonic services" without engaging in a rulemaking proceeding would "violate administrative procedures normally followed by the Commission." New T&T argues that adoption of HKTP's definition of "non- telephonic services" would not provide an opportunity for the public and industry to comment on a new class of service. It argues that the "extraordinary circumstances" necessary to adopt rules without notice and comment under Section 1.412(c) of the Commission's rules do not exist in this case and that HKTP must therefore file a formal petition for rulemaking. 13. The Commission's rules and court precedent provide that an adjudicatory proceeding, such as this one, is a proper forum for ruling on this application. Contrary to New T&T's assertion, granting HKTP's limited authorization to provide only switched data and fax service over international private lines does not require the Commission to amend its rules in a notice and comment rulemaking. Section 63.18 of the Commission's rules requires an applicant seeking to provide international switched services over international private lines to demonstrate "that the country [at the foreign end of the private line] affords resale opportunities equivalent to those available under U.S. law." We interpret this rule to mean that an applicant seeking to provide a specific switched service over private lines need only demonstrate that the country at the foreign end of the private line afford resale opportunities equivalent to those available under U.S. law for the specific service for which the applicant seeks authorization. This interpretation is consistent with the goal of the Commission's equivalency policy to prevent one-way bypass. Where there are equivalent resale opportunities available for the service offered in the foreign market, there is a significantly reduced danger of one-way bypass. 14. Section 1.412(b)(2) of the Commission's rules states that interpretive rules will ordinarily be adopted without public notice. To the extent this proceeding has any precedential impact on the Commission's rules, its impact is on the interpretation of the Commission's rules only. Further, courts have long held that an administrative agency has broad discretion in choosing whether to proceed by rulemaking or by an adjudicatory proceeding, such as this one. Finally, we note that HKTP's application was placed on public notice and that parties have had ample opportunity to submit comments and that all such comments were made available to the public. Requiring HKTP to submit a formal petition for rulemaking and await conclusion of a rulemaking proceeding before receiving its authorization would serve only to delay consideration of the issues before us now without any corresponding benefit. We therefore find no merit to New T&T's argument. 15. AT&T argues that we should not grant an ISR authorization for a limited class of service because "the equivalency test does not apply to specific categories of IMTS services." AT&T cites no authority for its narrow reading of the equivalency test, and nothing in the Commission's orders precludes a grant of a limited service-specific authorization. Indeed, the Commission expressly declined in the International Resale Order to develop specific criteria to determine whether equivalent resale opportunities exist. The equivalency test was developed to prevent one-way inbound bypass of the settlements system. As long as the equivalency test is applied in a manner consistent with its purpose of preventing one-way bypass, we see no need to adopt the restrictive reading AT&T advocates. In this case, there is little danger that granting HKTP's authorization to provide ISR on a limited basis will create a danger of one-way inbound bypass. Where equivalent opportunities exist in the foreign market to route traffic used for a specific service over private lines and where the likelihood of substantial harm due to the routing of unauthorized traffic over those lines is low, there is little danger of one-way bypass. 16. Both AT&T and MCI cite the fONOROLA Reconsideration Order for the proposition that the Commission's equivalency test was "expressly designed" to extend the Commission's "'domestic policy of unlimited resale of private lines into the international market' (emphasis added)." Both parties thus argue that granting a limited authorization for ISR where the ability to resell private lines is similarly limited in the foreign market, such as the authorization HKTP seeks, would be inconsistent with Commission policy. Both parties, however, have misread the fONOROLA Reconsideration Order and Commission policy. The Commission stated in the fONOROLA Reconsideration Order that the goal of the Commission's ISR policy is to "promote the U.S. public interest in cost-based international telecommunications services by introducing resale of international private lines." The Commission stated its expectation that "extension of our domestic policy of unlimited resale of international private lines into the international market will yield the same public benefits that resale has yielded in the domestic market -- increased demand, new services, reduced prices for most telecommunications services and less opportunity for price discrimination." Although the Commission has a general policy of promoting "unlimited resale" in foreign markets, the equivalency test was expressly designed for the limited purpose of precluding one- way inbound bypass and "prevent[ing] undue increase in the U.S. settlements deficit." As discussed below, we find little danger that granting HKTP's authorization will result in one-way inbound bypass. 17. BT argues that granting HKTP's application here would create an "unmanageable equivalency standard." It states that granting HKTP's application would allow foreign telecommunications carriers to seek authorization for other "niche ISR services." New T&T and WorldCom also argue that granting HKTP's application would set a bad precedent by adopting service definitions created in other countries. We disagree. The fact that carriers may only offer limited services via ISR does not detract from the benefits that would accrue to users of such services. Where there is only minimal danger of one- way bypass, we would be extremely reluctant to deny an authorization to provide ISR. Where the foreign market does indeed offer equivalent resale opportunities for the specific service at issue, including reasonable and nondiscriminatory interconnection charges, competitive safeguards, and an effective regulatory regime, we see little risk of harm to U.S. carriers or the U.S. public interest in granting the authorization. OFTA requires Hong Kong carriers providing data/fax ISR to install equipment to block voice traffic, and no party has argued that this equipment is not effective at blocking voice traffic. This requirement, together with OFTA's record of taking action in the event of anticompetitive abuse, leads us to the conclusion that the public interest will benefit from a grant of a limited authorization. 18. AT&T and New T&T argue that granting HKTP's authorization would be inconsistent with the International Bureau's Telecom Division decision in Cherry Communications. In that order, issued in March 1997, the Division denied Cherry Communications' application to provide ISR for all services on the U.S.-Hong Kong route. It found at that time that HKTI maintained a monopoly on all international calls until 2006 and therefore that Hong Kong did not offer equivalent resale opportunities. The Division did not rule at that time on Cherry Communications' request for authorization "with respect to services liberalized in Hong Kong" because there was insufficient information in the record to address the issue. In other words, the Division did not address the issue of whether a service-specific grant of ISR authority is consistent with Commission rules and policy. The decision in Cherry Communications therefore does not preclude us from granting HKTP's authorization to provide switched data and fax services via ISR. B. Equivalency Analysis 19. In the International Resale Order, the Commission concluded that promoting the resale of international private lines (IPLs) to provide switched services would foster new entry into the international telecommunications market and exert downward pressure on above-cost international accounting rates through the diversion of switched traffic to resold private lines. The Commission further concluded, however, that permitting "one-way resale," i.e., resale only from the overseas point inbound to the United States, would enable foreign carriers to divert U.S.-bound switched traffic to private lines, thereby avoiding the international settlements process and exacerbating the U.S. net settlements deficit. Permitting one- way resale would also fail to exert any downward pressure on international accounting rates. Accordingly, the Commission concluded that it would authorize the resale of international private lines interconnected to the public switched networks only to countries that allow such resale to occur in both directions. The Commission also required each applicant seeking to resell U.S. international private lines for the provision of switched services to demonstrate that the destination foreign country affords resale opportunities equivalent to those available under U.S. law. 20. In the Foreign Carrier Entry Order, the Commission amended the equivalency rules adopted in the International Resale Order by restating the criteria in the same manner as its effective competitive opportunities ("ECO") criteria, which govern entry by foreign carriers that control foreign bottleneck facilities. The Commission's rules thus require applicants seeking ISR authorization to demonstrate that the destination market provides U.S.-based carriers (1) the legal right to resell IPLs interconnected at both ends for the provision of switched services; (2) nondiscriminatory charges, terms and conditions for interconnection to foreign domestic carrier facilities for termination and origination of international services, with adequate means of enforcement; (3) competitive safeguards to protect against anticompetitive and discriminatory practices affecting private line resale; and (4) fair and transparent regulatory procedures, including separation between the regulator and operator of international facilities- based services. These four principles must be satisfied at the time we make an equivalency determination. Additionally, we examine other public interest factors that may warrant grant or denial of the application. 21. In the Foreign Participation Order, the Commission found it no longer necessary to require that all carriers demonstrate that the foreign market offers equivalent resale opportunities for carriers seeking to provide service via resold private lines in WTO Members' markets. Rather, the Commission found that one-way bypass would be less of a concern as countries' WTO commitments are implemented. The Commission thus removed the requirement that all carriers satisfy the equivalency test for applications to serve markets that have not been approved for ISR. Carriers seeking to serve such markets, are required, however, to satisfy the benchmarks settlement rate condition, which requires that an applicant demonstrate that 50 percent of the traffic on the route is settled at or below the benchmark settlement rate. The Commission also found, however, that applicants unable to satisfy the benchmarks condition may, in the alternative, demonstrate that the foreign market offers equivalent resale opportunities. 1. Legal Ability to Provide ISR 22. The first element of the equivalency test is whether the foreign market offers the legal ability to resell private lines equivalent to that available under U.S. law. Several parties argue that Hong Kong should not be found to offer equivalent resale opportunities until it removes all legal restrictions on ISR for all services. For the reasons discussed above, we find that the relevant issue in evaluating HKTP's application to provide switched facsimile and data services is whether Hong Kong offers U.S. carriers the equivalent ability to resell private lines for the provision of switched facsimile and data service only. We therefore will examine only the legal ability of U.S. carriers to provide switched data and fax service over resold private lines in Hong Kong. 23. We find that Hong Kong does offer the legal ability to resell international private lines for the provision of switched facsimile and data services that is equivalent to that available in the U.S. market. We note that OFTA, the Hong Kong regulator, has found that the exclusive license of HKTI does not include the exclusive right to provide ISR for the provision of data and facsimile services. We also note that OFTA has published its Consultation Report on the licensing and regulatory framework and Guidance Note on application procedures for data/fax ISR. OFTA requires that licensees implement technical measures to ensure that the ISR for facsimile and data service "does not have the capability of carrying real-time two-way speech of the customers." OFTA will license carriers to provide data/fax ISR under its Public Non-Exclusive Service (PNETS) license regime. Under this regime, there are no limits on the number of PNETS licenses that may be granted and no foreign ownership restrictions. Further, OFTA has granted licenses to several carriers to provide data/fax ISR, including one U.S. carrier. 24. Based on the fact that OFTA has granted several licenses for carriers to provide data/fax ISR, and the fact that there is no limit to the number of licenses that may be granted or foreign ownership restrictions, we find that Hong Kong does not have any legal barriers to reselling international private lines to provide switched data and fax service. 2. Practical Ability to Provide ISR a. Interconnection 25. The second element of the Commission's equivalency test is whether or not reasonable and nondiscriminatory charges, terms and conditions exist for interconnection to a foreign carrier's domestic facilities for termination and origination of international services, and whether adequate means exist to monitor and enforce these conditions. 26. HKT's affiliates and other existing Fixed Telecommunications Network Services (FTNS) operators are required under conditions in their licenses to interconnect with all other telecommunications networks and services licensed by OFTA. OFTA states that it will take an "objective cost-based approach" towards setting charges for interconnection. In addition, HKT's affiliates are required to interconnect "at charges which are based on reasonable relevant costs." OFTA has recently announced its proposed delivery fee arrangement for usage charges payable by PNETS ISR licensees for interconnection to the public switched network of HKTC. This rate, applicable to both originating and terminating traffic, is proposed to be set at a level of approximately 4.5 U.S. cents. In addition, OFTA prohibits an FTNS licensee from "discriminat[ing] against any other licensee, or other licensees . . . ." We also note that OFTA has not hesitated to take action when it has found that HKT or any of its affiliates to be in violation of their license conditions. In light of these conditions, we find that reasonable and nondiscriminatory charges, terms and conditions exist for the interconnection to domestic facilities for termination and origination of international services, and adequate means exist to monitor and enforce these conditions. 27. Several commenting parties argue that reasonable and nondiscriminatory charges, terms and conditions are not available for the interconnection to a domestic carrier's facilities in Hong Kong. WorldCom and MCI argue that HKTI does not provide interconnection at rates that are reasonable and cost-based. WorldCom expresses concern that the requirement that HKTP's rates be set at "reasonable relevant costs" does not require that rates be based on long-run incremental cost, but allows the recovery of historical costs. WorldCom and MCI also raise the concern that private line resellers in Hong Kong could be required to pay interconnection charges that are higher than those paid by facilities-based carriers and that the interconnection fee would not be cost-based. 28. OFTA has recently released its preliminary findings in its Review of Delivery Fee Arrangements. In that proceeding, OFTA has proposed to adopt a fee of 4.5 U.S. cents to originate or terminate international traffic in Hong Kong. This fee is composed of a cost-based delivery fee of approximately 2.5 U.S. cents, which would apply to all international traffic originating or terminating in Hong Kong, along with a universal service contribution fee of approximately 2 U.S. cents. We are concerned with the overall relatively high level of the proposed delivery fee (4.5 U.S. cents) and the fact that it differs from the charge applicable to local traffic. The total proposed fee of 4.5 U.S. cents, however, is significantly lower than the current 35 cent settlement rate applicable to U.S.-Hong Kong traffic. We also find that the level of the charge is sufficiently low that it will allow carriers to terminate U.S originated traffic in Hong Kong, and will not result in one-way bypass. We also note that the delivery fee is nondiscriminatory as between inbound and outbound ISR interconnection. We therefore find the delivery fee structure proposed by OFTA to be reasonable and nondiscriminatory, and that such charges will not preclude carriers from carrying switched traffic over private lines in both directions, and is therefore consistent with our equivalency analysis. 29. New T&T states that HKT maintains a monopoly on international private line circuits until January 1, 2000, and that rates for the leasing of such lines are significantly above cost and should be reexamined by OFTA. Although HKTI will continue to be the monopoly provider of external circuits until January 1, 2000, we note that it is required to provide international private line circuits at tariffed rates that are approved by OFTA. We also note that HKTI's tariffed rates for international private line half-circuits between Hong Kong and the United States compare favorably with rates for private line half- circuits between other Asian and South Pacific markets and the United States. For instance, in April, 1998, HKTP's monthly rate for a 1.544 Mbps private line half-circuit between Hong Kong and the United States was approximately $41,000. KDD's monthly rate for a such a private line half circuit between Japan and the United States was about $47,000, and Telstra's rate for the same type of Australia-U.S. half circuit was approximately $52,000. The rates charged by HKTP are, in fact, lower than rates charged by other operators in the region that face competition for the same type of private line half-circuits. We therefore find, contrary to New T&T's assertion, that HKTP's continued monopoly on international private line circuits does not result in prices which, in effect, deny carriers in Hong Kong equivalent resale opportunities. b. Competitive Safeguards 30. The third factor we examine is whether safeguards exist in the foreign market to protect against anticompetitive practices. The safeguards we consider important include: (1) the existence of cost- allocation rules to prevent cross-subsidization; (2) timely and nondiscriminatory disclosure of technical information needed to use, or interconnect with, carriers' facilities; and (3) protection of carrier and customer proprietary information. 31. The first issue we consider is whether Hong Kong maintains sufficient cost-allocation rules to prevent cross-subsidization. Section 17 of HKTI's license requires it to implement "such accounting practices as specified by the Authority." Sections 18 and 19 provide OFTA the authority to audit HKTI's accounts. HKTP also states that the HKT companies are required to comply with OFTA's cost allocation manual and submit regular reports and are subject to an annual independent audit. These requirements are intended to allow OFTA to evaluate the financial viability of the HKT companies, to ensure that the HKT companies are engaging in fair competitive practices, and to ensure that the HKT companies meet service obligations. New T&T argues that recent actions by the Hong Kong Government have removed any structural separation requirement from the HKT companies and that this action will lead to greater opportunities for cross-subsidization. New T&T also states its concern that OFTA will not effectively enforce the requirements it places on the HKT companies. WorldCom and MCI object that HKTP has provided insufficient information on the cost-accounting rules applicable to the HKT companies for the Commission to determine whether sufficient safeguards are in effect to prevent cross-subsidization. 32. We find that the cost allocation measures currently in place in Hong Kong should ensure that U.S. carriers have equivalent resale opportunities. After reorganization, the HKT companies will be permitted to "jointly and severally" provide external services. Contrary to New T&T's assertions, we find that this action does not necessarily open the way for anticompetitive cross subsidies. Although the Commission has found that structural separation is an effective tool at preventing cross-subsidy, it is by no means the only means of doing so. OFTA has adopted cost allocation requirements that are applicable to the new corporate structure that include detailed accounting and reporting requirements. These requirements are designed to guard against anticompetitive practices such as improper cross-subsidies. OFTA maintains the right to audit the accounts of all of the HKT companies and each are subject to the requirements of OFTA's cost allocation manual. We also note that the HKTC is required to tariff its retail offerings at fully distributed cost, and that OFTA has stated that it will "look carefully" at prices that are below fully distributed cost. Because OFTA requires that retail services are priced at fully distributed cost, it is unlikely that cross-subsidization would be a successful strategy for HKT to gain an advantage over its competitors. 33. We next address whether competitive safeguards exist in Hong Kong to ensure the disclosure of network information required for interconnection. We note that HKT is required to disclose network information to other licensees upon request, and that HKT may not make any material changes to the network that affect interconnection to the network without the prior consent of OFTA, and that it is required to give notice to operators likely to be affected by such changes. We also note that no party filing comments in this proceeding has voiced concern regarding the disclosure of technical information necessary for interconnection. In light of the network disclosure requirements and lack of specific evidence to the contrary, we find that there are adequate requirements in Hong Kong to ensure that carriers receive the technical information required for interconnection. 34. Finally, we examine whether there are adequate measures to protect proprietary customer and carrier information. HKT and all other FTNS licensees are prohibited from disclosing the information of a customer without consent except where necessary for law enforcement purposes or as authorized by law. In addition, Hong Kong is bound by its WTO Commitments to ensure that information obtained by competitors in the course of providing interconnection or other services is not used for anticompetitive purposes. No party filing comments in this proceeding has voiced concern regarding the release of proprietary information. In light of the above safeguards, we find that the applicable restrictions on release of customer and carrier information applicable to HKT are sufficient to prevent disclosure of proprietary information. c. Existence of Effective Regulation 35. The fourth factor we review is whether there is an effective regulatory framework in Hong Kong to develop, implement, and enforce legal requirements, interconnection agreements and other competitive safeguards. The focus of this factor is on whether there is separation between the foreign regulator and the operator of international facilities-based service. 36. We find that an effective regulatory regime does exist in the Hong Kong market. OFTA, established in 1993, serves as the executive arm of the Telecommunications Authority and the statutory body charged with the regulation of the telecommunications sector in Hong Kong. OFTA is an independent government body that is separate from the HKT companies, which are controlled by Cable & Wireless plc. We also note that the Commission staff has recognized that adequate regulatory authority exists in Hong Kong to block any impediments to competition in the wireless market. 37. New T&T argues that OFTA is not an effective regulator in disciplining the former monopoly operators. It argues that the Western Wireless order is not a valid precedent for the proposition that OFTA exercises sufficient regulatory authority to ensure that there are not de facto barriers to entry in the ISR market. New T&T also argues that OFTA's "commitment to regulate with a light hand" raises concerns about OFTA's ability to take firm, pro-active measures to prevent anticompetitive conduct by HKTP and its affiliate. New T&T concedes, however, that earlier this year, OFTA issued a directive against HKT's alleged anticompetitive and discriminatory practices that had been "previously unchecked by the regulator until April 1, 1998." We find, moreover, that recent measures undertaken by OFTA indicate that it does, indeed, have the ability and willingness to take firm measures in the face of anticompetitive conduct. 38. New T&T also argues that the lack of a general competition law in Hong Kong will allow HKTP and its affiliates to engage in anticompetitive tactics against its competitors. It also cites the 1998 National Trade Estimate Report on Foreign Trade Barriers ("Foreign Trade Barriers Report") as evidence that the U.S. Government has recognized that lack of a comprehensive competition law may pose a trade problem. Although Hong Kong lacks a general competition law, the Telecommunications Ordinance gives OFTA substantial powers to regulate the telecommunications sector and take action in the case of anticompetitive conduct. We therefore find that the regulatory regime in Hong Kong is sufficient to preclude anticompetitive actions that could serve as de facto barriers to entry into the switched data and fax market in Hong Kong. 39. We also recognize that the Hong Kong government has taken significant steps to end HKTI's monopoly and introduce competition into the international marketplace. We find that the potential for one-way bypass of granting HKTP's authorization is limited by the positive regulatory climate in Hong Kong as well as the market opening steps taken by the Hong Kong Government. C. Market Entry Analysis 1. Impact on Competition in the U.S. Market 40. In the Commission's recent Foreign Participation Order, it articulated a new standard to govern authorization of foreign-affiliated telecommunications carriers that seek to enter the U.S. market and provide service to the affiliated market. The Commission adopted a presumption in favor of entry that can only be rebutted by a showing that entry by the foreign carrier would pose a very high risk to competition in the United States. In order to pose a very high risk to competition, a carrier would have to have the ability to raise the costs of its U.S. rivals notwithstanding the applicability of the Commission's competitive safeguards. 41. New T&T argues that HKTP poses a very high risk to competition in the United States by virtue of its monopoly control over essential facilities in the foreign market. We note that HKTP has agreed to be subject to the Commission's dominant carrier regulatory regime. We also note that it is subject to the Commission's ISR safeguard, which requires the Commission to take enforcement action if it detects one-way bypass occurring. 42. New T&T has offered no evidence that these safeguards will be ineffective in insuring that HKTP and its affiliates are unable to leverage their market power into the U.S. market to the detriment of U.S. consumers, and we find no basis for such a concern. We therefore find that concerns of anticompetitive conduct in the U.S. market do not justify denying HKTP's authorization to provide switched data and fax ISR in the U.S. market. 2. Additional Public Interest Factors 43. The additional public interest factors that we consider in assessing HKTP's application include the general significance of the proposed entry to the promotion of competition in the U.S. communications market and any national security, law enforcement, foreign policy, and trade concerns raised by the Executive Branch. 44. Several parties argue generally that granting HKTP's application is contrary to the public interest for a number of reasons. We find no merit to these arguments. 45. WorldCom states that granting HKTP's application to provide non-telephonic ISR will serve as a disincentive for Hong Kong and other governments to take further market-opening steps. We disagree. Hong Kong has recently taken significant liberalizing steps toward opening its market and deregulating telecommunications services. We are encouraged by the actions taken in Hong Kong to end HKT's monopoly and allow full international resale competition on January 1, 1999 and facilities-based competition in 2000. Indeed, we find that the regulatory authority in Hong Kong, OFTA, has taken significant steps to introduce competition in Hong Kong to the extent allowed within the confines of HKT's exclusive license. In light of these steps taken by the Hong Kong government, we find that refusing to grant HKTP's application would do little to further the public interest in encouraging competition in foreign telecommunications markets. 46. BT argues that it would be "unfair" to grant HKTP's authorization before competition is allowed for all services in Hong Kong. It argues that because HKTP and its affiliates may provide all private line communications requirements from Hong Kong, and U.S. carriers may provide only "non- telephonic" services, U.S. carriers would face an "insurmountable competitive disadvantage" in Hong Kong. We recognize that HKTI's continued monopoly on international voice services that lasts until January 1999 may provide it a short-term advantage because only HKTI may provide international service. We find, however that an all-or-nothing approach to authorizing ISR would fail to provide U.S. consumers with the benefits of the incremental approach to liberalization that Hong Kong is taking. Further, we find that granting this service-specific application is appropriate under these circumstances because of the pro- competitive moves taken by the Hong Kong Government. We note that Hong Kong Government has recently issued its "1998 Review of Fixed Telecommunications," in which it declined to set limits on the number of ISR or fixed network licensees. We find that these actions indicate a commitment on the government of Hong Kong to a robustly competitive telecommunications market in Hong Kong. We therefore find BT's argument unpersuasive. 47. We also find little merit to WorldCom's claim that granting HKTP's authorization would undermine the Commission's settlement policies. WorldCom states the Commission retained the equivalency policy in order to put pressure on above-cost settlement rates and that there is no indication that granting HKTP's authorization will have a significant effect in lowering settlement rates. WorldCom misinterprets Commission policy. Both the benchmarks condition and the equivalency analysis are designed to guard against one-way bypass. The Commission retained the equivalency test as an alternative to the benchmarks condition because it found that satisfaction of the equivalency test would eliminate any concern about one-way bypass, and because allowing ISR on the route would bring public interest benefits. The Commission has indeed stated that one of the public interest benefits of allowing ISR is to lower international settlement rates. The broader goal of the Commission's ISR policy, however, is to put downward pressure on above-cost rates by allowing ISR as an alternative to existing high-rate services. By lowering the cost of terminating fax/data ISR traffic, we expect consumer rates to decrease for these services on the U.S.-Hong Kong route as rates in general have decreased on other routes where the Commission has allowed ISR. 48. The Executive Branch has not raised any national security, law enforcement, foreign policy, or trade concerns with this application. We are confident that this authorization will benefit U.S. consumers sending data and facsimiles to Hong Kong by increasing competition to that market. Moreover, it will put additional pressure on Hong Kong collection rates, at least for data and fax service, thereby stimulating inbound U.S. traffic from this market, and ultimately put additional pressure on Hong Kong accounting rates. We accordingly find it in the public interest to permit HKTP to enter the international private line resale market for the provision of switched data and fax services on the U.S.-Hong Kong route. D. Enforcement 49. Several of the parties opposing HKTP's application argue that granting HKTP's authorization to provide switched data and fax service over private lines would create severe enforcement problems and that there is a significant danger that voice traffic will be carried over private lines in violation of Commission policy. HKTP states in its application that OFTA has required PNETS ISR licensees to use currently available equipment to differentiate between speech, data and facsimile traffic and will disconnect a call if it determines that it is carrying voice traffic, regardless if the call originates or terminates in Hong Kong. OFTA has also required PNETS ISR licensees to prohibit customers, as a condition for service, from using the service for voice communication. 50. We find that restricting ISR licensees serving Hong Kong to providing non-voice service only does not pose insurmountable enforcement issues. We are concerned that carriers providing data/fax ISR between the United States and Hong Kong may seek to route voice traffic over private lines, resulting in one-way bypass of the settlements system. We therefore adopt the same requirement adopted by OFTA that carriers providing data/fax ISR prohibit customers from using the data/fax ISR service to carry voice traffic. We will accordingly require that U.S. carriers providing data/fax ISR undertake measures to ensure that voice traffic is not carried over private lines. We require that U.S. carriers providing data/fax ISR to Hong Kong certify that the entity terminating the traffic in Hong Kong has installed the type of discrimination equipment prescribed by OFTA. We note that no party in this proceeding has alleged that the discrimination equipment prescribed by OFTA does not work as intended. Further, we expect that existing U.S. carriers will monitor traffic on the U.S. Hong Kong route and alert the Commission if irregularities occur. These measures, along with OFTA's record as a regulator willing to take action in the event its rules are violated, give us confidence that the risk is slight that the U.S. public interest will suffer due to the substantial illegal diversion of voice traffic onto data/fax ISR lines. If the Commission becomes aware of such diversion in violation of conditions to this authorization, it will not hesitate to take appropriate action. III. CONCLUSION 51. Because we find that the Hong Kong offers equivalent private line resale opportunities to U.S.-based carriers for the provision of switched facsimile and data services, we grant the application before us in this proceeding. We conclude that the availability of additional services between the United States and the Hong Kong will promote competition and the introduction of new international telecommunications services. IV. ORDERING CLAUSES 52. In view of the foregoing, IT IS HEREBY CERTIFIED that the present and future public convenience and necessity require grant of this application; 53. Accordingly, IT IS HEREBY ORDERED that File No. ITC-98-196 IS GRANTED and Hong Kong Telecommunications (Pacific), Limited is authorized to resell international private lines interconnected to the public switched network for the provision of switched facsimile and data services only; 54. IT IS FURTHER ORDERED that the authority granted herein to resell international private lines between the United States and Hong Kong for the provision of switched facsimile and data services only is limited to the provision of such services between the United States and Hong Kong only -- that is, private lines which carry traffic that originates in the United States and terminates in Hong Kong, or traffic that originates in Hong Kong and terminates in the United States. This restriction is subject to the following exception: Hong Kong Telecommunications (Pacific), Limited may engage in "switched hubbing" through Hong Kong for switched facsimile and data services only consistent with Section 63.17 of the Commission's rules, 47 C.F.R.  63.17; 55. IT IS FURTHER ORDERED that the authority granted herein to resell international private lines between the United States and Hong Kong is limited to the provision of switched facsimile and data services only, and that authorized carriers certify that the entity terminating or originating the traffic in Hong Kong has installed discrimination equipment to distinguish between voice and data traffic as prescribed by the Telecommunications Authority, Hong Kong. The authority granted herein is also conditioned on the authorized carrier prohibiting its customers from using authorized private lines to carry voice traffic; 56. IT IS FURTHER ORDERED that Hong Kong Telecommunications (Pacific), Limited will be regulated as a dominant carrier on the U.S.-Hong Kong route, pursuant to Section 214 of the Act, 47 U.S.C.  214, and Section 63.10 of the Commission's rules, 47 C.F.R.  63.10, and will comply with the requirements of paragraph (c) of that section. The quarterly traffic reports filed pursuant to Section 63.10(c) must include the information required by Section 43.61 of the Commission's rules, 47 C.F.R.  43.61, for "facilities resale" on the U.S.-Hong Kong route; 57. IT IS FURTHER ORDERED that Hong Kong Telecommunications (Pacific), Limited will comply with Sections 63.21 of the Commission's rules, 47 C.F.R.  63.21, and shall also file the information required by Section 43.61 for "facilities resale" on the U.S.-Hong Kong route on a semi-annual basis not later than September 30 for the prior January through June period, and March 31 for the second six-month calendar period, for the first three calendar years after this equivalency finding; 58. IT IS FURTHER ORDERED that grant of this authorization is conditioned upon Hong Kong's continuing to afford resale opportunities to U.S.-based carriers equivalent to those afforded under U.S. law for switched non-voice services; 59. This Order is issued under Section 0.261 of the Commission's rules, 47 C.F.R.  0.261 (1996), and is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's rules, 47 C.F.R.  1.106 (1996), or applications for review under Section 1.115 of the Commission's rules, 47 C.F.R.  1.115 (1996), may be filed within 30 days of the date of public notice of this Order, Authorization and Certificate (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, International Bureau